PUBLIC PENSIONS: Financial crisis leaves £10bn black hole ... and we'll all pay for it

Every family faces a £400 bill to fill the vast pension funding gap opened up in just a year by the country’s 5.8million public sector workers, Treasury figures revealed yesterday.

The shortfall between what state-paid staff, such as council workers, policemen and doctors, contributed towards their generous retirement payouts during 2007-08 and the pension value they actually accrued is £10billion.

The gap is now three times bigger than the previous year – a rise caused by the collapsing of the value of global investments and workers living longer.

Critics said it was clear that final salary pensions for the public sector – where workers can often retire five years earlier than their private sector counterparts –could no longer be afforded by the country.

Every family faces a £400 bill to cover the public sector pension scheme funding gap

Laith Khalaf, pensions analyst at the financial advisers Hargreaves Lansdown, said: ‘The longer the Government refuses to acknowledge the problem the bigger it becomes. We are nowhere near covering the promises that were made to public servants last year.’

The £10billion gap is part of a ballooning public sector pensions deficit being paid for by 25.2million families in Britain today. It is a debt likely to be inherited by their children and grandchildren.

The statistics reopened the debate on the future of such gold-plated pensions, which are guaranteed to pay a percentage of earnings on retirement.

Corin Taylor, of the Taxpayers’ Alliance, said: ‘They are too generous – and it is simply unsustainable. It cannot be right for taxpayers to pay for public sector pensions when they are seeing the value of their pension plummet, if they have one at all.’

He said it was particularly wrong when the old argument – that public sector workers deserve a better pension to make up for earning less – was dead.

Official figures show the average man working full-time in the public sector gets paid nearly £30,000 a year. In the private sector he would get £26,200.

The vast majority of public sector workers make regular contributions to their final salary pensions.

But they are rarely enough to cover the benefits which will be claimed on retirement.

Most public sector schemes are described as ‘unfunded’ – meaning that staff contributions do not go into a separate pension pot – and that the money to pay for their retirement comes from the taxpayer.

Around 90 per cent of state-paid workers get a gold-plated final salary pension, compared to only around 11 per cent working for private firms.

The latest such scheme under threat is at BT. Closing its final salary pension for existing workers will save around £100million a year, the company says.

With a ‘defined benefit’ pension, typically a final salary scheme, workers get a guaranteed pension, equal to up to two-thirds of their earnings on retirement.

In recent years, however, workers have been increasingly forced to sign up to cheaper, less generous pensions, known as ‘defined contribution’ schemes.

A Treasury spokesman said: ‘Reforms already being introduced by the Government will limit costs to taxpayers and ensure that public sector pensions remain fully affordable and sustainable into the long term.’